Debt can come in many forms. From a small AfterPay repayment, to HECS or HELP payments, personal loans and a Mortgage, nearly everyone has some form of debt. And with nearly two-thirds of Australian households in debt - 39% of these with debt additional to or outside of their mortgage - it’s no wonder that many are feeling limited financially. The good news? There are some tried and tested ways to tackle your debt and potentially pave the way to a more financially free life. We’re here to break these down for you! 

Assess Your Debt

The first thing you need to do is make a list of all your debts, including credit cards, personal loans, car loans, and mortgages. For each debt, note down the outstanding balance, interest rate, and minimum monthly payment. This will give you a clearer picture of your financial situation.

Create a Budget

A budget is your roadmap to managing your finances effectively. It helps you track your income and expenses, identify areas where you can cut back, and allocate funds towards debt repayment. It’s essential that you are realistic when creating your budget, accounting for all your regular expenses as well as any one-off payments, this way you know exactly how much you have left to work with.  

Prioritize High-Interest Debt

Not all debt is created equal. Some debts carry higher interest rates than others. Start by prioritising high-interest debts, such as credit card balances, as they cost you more in the long run. Allocate extra funds from your budget to pay down these high-interest debts while making minimum or reduced payments on lower-interest debts.

Consider Debt Consolidation

If you have several high-interest debts, you may want to consider debt consolidation options. This involves taking out a single loan at a lower interest rate to pay off all your high-interest debts. It simplifies your debt repayment and can save you money on interest. Be sure to compare loan offers and terms to find the best option for your situation.

Snowball or Avalanche Method

Two popular debt repayment strategies are the snowball and avalanche methods. With the snowball method, you focus on paying off the smallest debt first with additional repayments, while making minimum repayments on others. Once the smallest debt is paid off, you move to the next smallest, and so on. This method provides a psychological boost as you see quick wins.

The avalanche method targets the highest interest debt first. You allocate extra funds to pay off the debt with the highest interest rate while making minimum repayments on the others. This method minimises the total interest you'll pay over time.

Build an Emergency Fund

While it may seem counterintuitive to save money while in debt, having an emergency fund is essential. It prevents you from relying on credit cards or taking on more debt when unexpected expenses arise. Whilst it is commonly thought you should aim to save around three to six months' worth of living expenses in your emergency fund, any amount you can realistically manage will be beneficial. 

Seek Professional Advice

If you are finding your debt situation complex or overwhelming, consider seeking advice from a certified and registered financial counsellor or advisor. They can help you create a customised debt repayment plan and provide guidance on managing your finances more effectively.

Stay Committed

Paying off debt and achieving financial freedom is a journey that requires commitment and discipline. Stay focused on your goals, track your progress, be mindful and reflect on any setbacks and finally, celebrate your milestones along the way. 

Debt doesn't have to be a lifelong burden. By assessing your debt, creating a budget and exploring various repayment strategies, you will be on your way to living a more financially free life. 

For further information on budgeting, saving, or to learn more about the home buying process, try HomeStart’s free Home Buyer Ready Program. Home ownership could be closer than you think with HomeStart.